Gallagher v. Mutual Life Ins. Co. of New York

• Decision Date: 25 March 1941
• Docket Number: 16714.
• Citation: 32 N.E.2d 749
• Parties: GALLAGHER v. MUTUAL LIFE INS. CO. OF NEW YORK.
• Court: Indiana Appellate Court

32 N.E.2d 749

GALLAGHER v. MUTUAL LIFE INS. CO. OF NEW YORK.

No. 16714.

Appellate Court of Indiana, in Banc.

March 25, 1941

Appeal from Sullivan Circuit Court; Martin L. Pigg, Judge.

J W. Lindley and Thomas J. Gallagher, both of Sullivan, for appellant.

Louis W. Dawson, of New York City, Thompson, O'Neal &amp Smith, of Indianapolis, and Hays & Hays, of Sullivan, for appellee.

Herman L. Ridenour, Clair McTurnan, and James L. Gavin, all of Indianapolis, amici curiae.

FLANAGAN Judge.

This is an action by appellant, Thomas J. Gallagher, as administrator de bonis non of the estate of William M. Medsker, deceased to recover $1,883 with interest from June 4, 1934, the date of the death of said William M. Medsker, on an ordinary life insurance policy on his life.

The court, upon request, found the facts specially, stated its conclusions of law thereon and rendered judgment that appellant take nothing and that appellee recover costs.

Appellant properly reserved exceptions to the conclusions of law and filed his motion for a new trial upon the grounds that (1) the decision of the court is not sustained by sufficient evidence and (2) the decision of the court is contrary to law. The motion for a new trial was overruled and exceptions taken.

The court found in substance: that appellant is the duly appointed, qualified and acting administrator of the estate of William M. Medsker, who died intestate on June 4, 1934; that on January 17, 1919, appellee issued the policy of insurance sued on to said William M. Medsker on his life, for the sum of $2,500; that on January 17, 1930, the decedent borrowed $500 on said policy and executed his note for said sum with six per cent interest; that on January 17, 1931, decedent borrowed $589.75 on said policy, which sum was used to pay off the original loan of $500, the interest then due of $30 and to pay $59.75 balance owing on a premium then due; that on January 17, 1932, there was due appellee on said loan the sum of $625.14, and there was also due another yearly premium; that on said date there was allotted to said policy a surplus dividend of $30.65 and decedent applied $25.64 of the dividend to the payment of an extension fee for which appellee extended the time for payment of the premium then due for a period of six months; that decedent never paid the premium due January 17, 1932, and after the expiration of the extension period appellee lapsed the policy as of January 17, 1932; that after the default of the payment due January 17, 1932, decedent never elected any of the options designated in the policy for obtaining the cash surrender value of the policy, obtaining extended term insurance, or paidup insurance; that after the death of decedent, appellant attempted to make proof of death but that appellee denied liability.

The court set out the policy sued on as a part of its finding and further found that appellant set up as extended term insurance on decedent the sum of $1,883 to run a period of one year and 191 days from January 17, 1932, the date of the default, or until July 27, 1933.

The amount available to purchase extended insurance was arrived at by adding to the then cash surrender value of $658.10 the sum of $5.01, as the cash value of a dividend addition of $8, making $663.11, deducting from this total $625.14, the amount of the indebtedness, leaving a net cash value of $37.97; adding thereto $17.77, a rebate from the sum paid for the six months' extension for payment of the premium due January 17, 1932, making a total amount available of $55.74.

The amount of extended term insurance to be purchased was arrived at by adding to the face of the policy the dividend addition of $8, making a total of $2,508 and deducting therefrom $625.14, the amount of the indebtedness, leaving a total of $1,882.86, which was "rounded off" to the higher dollar of $1,883.

Applying the sum of $55.74 found available as above described, as a net single premium to the purchase of $1,883 of term insurance the term of one year and 191 days was procured.

By his exceptions to the conclusions of law appellant presents the question as to whether appellee properly computed the amount and term of the extended insurance.

The involved statute in force at the date of the issuance of the policy in question, Acts 1909, Page 247, Chapter 95, Section 5 Subsection 10 reads as follows: "That in the event of the default of premium payment after premiums have been paid for not less than three years, the insured shall be entitled to the extended insurance shown in the table of values and options for the end of the last year for which full annual premiums shall have been paid: Provided, That any unpaid note given for premium and any existing indebtedness to the company on account of or secured by the policy shall reduce the amount or term of such extended insurance in the ratio of such indebtedness to the net value of such extended insurance: and, Provided, That the policy may be surrendered to the company at its home office within one month from date of default for a specified cash value at least equal to the sum which would otherwise be available for the purchase of extended insurance as aforesaid: and, Provided, further, That the company may defer payment for not more than six months after the application therefor is made. This provision shall not be required in term insurance of twenty years or less."

The involved section of the policy reads as follows:

"Options on Surrender or Lapse.--After three full years' premiums shall have been duly paid, the owner, not later than three months after any default in payment of premium, may elect one of the following options:

"(a) to surrender this policy for its cash value less any indebtedness to the Company hereon (this balance is hereinafter referred to as the net cash value); or,

"(b) to have the insurance continued in force from the date of such default as non-participating term insurance, for an amount equal to the face amount of the Policy and any outstanding dividend additions less any indebtedness to the company hereon; or,

"(c) to surrender this Policy for non-participating paid-up life insurance payable at the same time and on the same conditions as this Policy. "The cash value under option (a) will be the reserve for the face amount of this Policy and for any dividend additions hereto at the date of default, less a surrender charge which, in no case, shall be more than one and one-half per centum of the face amount insured by this Policy; after premiums have been paid for ten full years or more there shall be no surrender charge.

"The term for which the insurance will be continued under option (b), or the amount of the paid-up life insurance obtainable under option (c), will be such as the net cash value obtainable under option (a) will purchase at the attained age of the Insured at date of default when applied as a net single premium.

"In the event of default in payment of premium, if this Policy shall not, within three months after such default, have been surrendered to the Company at its Home Office for its cash value as provided in option (a), for paid-up insurance as provided in option (c), the insurance will be automatically continued as provided in option (b)."

The policy also has attached a "Table of Surrender and Loan Values" which provides that after the policy has been in force 13 years the term for paid-up nonparticipating insurance shall be 12 years and 45 days.

Section 5, Subsection 7 of the acts above referred to requires the policy to provide such a table of surrender and loan values and further provides that in event of default insured shall be entitled to extended insurance as shown in the table of values.

It is contended that because of this provision of the statute, the table of values set forth in the policy is the sole and only measure of extended insurance rights, and the term therein set out could not be lessened by reason of the deduction of an indebtedness from the reserve or cash surrender value. We cannot agree with this contention. This provision of the statute must be construed in connection with all other provisions. Subsection 10, Section 5 of this act, as above set forth, specifically provides for a method of reducing the term as set forth in the table of values in "the ratio of [the] indebtedness to the net value of such extended insurance." The statute does not make the table of values the sole and only measure of extended insurance rights when indebtedness exists, but makes it a base to be used in the formulae provided for in Subsection 10.

Appellant next contends that the policy provides for the use of the indebtedness for reduction both of the amount of the policy and of the term in violation of the provisions of the statute which specifically provides that it may be used to reduce the amount or the term in the alternative. With this contention we agree. Metropolitan Life Insurance Co. v. Winiger 1938, 215 Ind. 120, 17 N.E.2d 86; Waddell v. New England Life Insurance Co., 1925, 83 Ind.App. 209, 147 N.E. 816; New England Mutual Life Insurance Co. v. Olin, 7 Cir., 1940, 114 F.2d 131, 136. The statute is unambiguous. The involved provisions of the policy not only do not comply, but are in direct violation. What is the effect?

Appellant insists that the first provision of the policy which deducts the indebtedness from the amount should be followed, and the second provision which deducts the indebtedness from the cash surrender value and consequently reduces the term, should be held invalid and ignored. Appellant argues that appellee having elected to deduct the indebtedness from the face of the policy could not then deduct said indebtedness from the term; therefore the second provision is void and should...